When to Sell a Stock?
WHEN TO SELL. This serves our fellow Masters that are new trading stocks or perhaps need a gentle reminder on when to cash in. If you have bought securities or are thinking about it, you have to know when to sell them to cash in your profits. Worse yet if you are losing money on a stock/security you thought was wonderful, you have to cash out before it goes to nothing.
HITS TARGET PRICE
When you buy a stock, ETF, i.e. a security -- you are set on making a profit. Take an old man stock like General Electric (GE). You plan on buying this stock after you have done your homework. You believe after 'X' amount of time GE will hit $24, your target price. That's when you sell. It works out to a 14% return on investment.
When you buy a stock create a simple spreadsheet or Google document that contains your target price estimates. It contains the ticker, the entry price (price you payed for it), your target price (and date), and the % increase/loss. Use a simple formula that does the calcuation for you so you can play with the numbers. This allows you to get a feel for what you are hoping to achieve. If you are paying thousands from your hard earned savings then take the time to record a simple ledger as shown below. DO NOT MAKE a trade without pondering the target price and how/why it will get there.
|Ticker||Entry Price (11/13/2012)
Using GE as our example, along the way you also benefited from its 3.23% annual dividend yield. Don't be greedy. Don't hold out for the $30 target price. It will most likely not get there and if you don't exit when you planned you could lose all your profits. Its not fun to watch your holdings be worth a specific value only to wait too long and have it be worthless. The rules are simple. Exit stage right when you hit your target price.
You will be able to use the profits for your next investment. If your money is still locked up you can't do anything with it. Investing successfuly involves making a series of profitable trades. You can't more stock if you don't have more money? Make your profit, then take it. It needs to be cash in your account.
NO PROFIT, DOWN 10%
Refer back to your target price analysis. Put in a stop loss limit that fires off automatically and sells your holdings at a specific low price. In the example above that would be at $18.75. Don't continue to lose your shirt, lunch, pants, etc. You don't have to stay in a given stock if it continues to fall. Some stocks fall victim to short sellers, dumbshit management moves, and so on. If a stock is bleeding you have to CUT YOUR LOSSES.
There is no shame in losing money. There is shame if you do nothing to stop it. Don't hold out hope that the stock will bounce back, or double down. Don't throw money at a lost cause. Move to the next trade, there are thousands of securities to choose from. As Jay-Z once said:
I got a million ways to get it
Choose one (choose one)
Hey, bring it back (bring it back)
Now double your money and make a stack
I’m on to the next one, On to the next one
Do the same fellow Masters. Remove the emotional loss and move on to the next trade.
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